Archive for August 5th, 2010

There have been a few Math Mistakes in the News this summer with regard to insurance companies, though unfortunately I can’t seem to dig up what all of the actual mistakes are.

Back on May 5 the California Department of Insurance released a press statement that Anthem Blue Cross had been making some math mistakes and they were going to be under extra scrutiny. According to the statement:

The errors identified included:

Error #1: Double counting of aging in the calculation of underlying medical trend for the projection of total lifetime loss ratio.

Error #2: Anthem overstated the initial medical trend used to project claims for September 2009 for known risk factors.

Both of these errors are errors of math and not differences in actuarial opinion.

I didn’t see anything about this costing a particular amount of money, though a June 25 article from the Los Angeles Times indicates that they canceled a rate increase of up to 39% for many of their California customers customers as a result.

Then, less than two months later, Aetna Inc. also had some math woes. According to the same LA Times article,

Connecticut-based Aetna Inc. had sought an average 19% increase in rates for its 65,000 individual customers, but pulled back after multiple math errors in its paperwork were found by its own staff and by an independent consultant working for the state.

I was tempted to write “Bummer” but there’s really nothing bummerish about not having a 19% rate increase. There’s no direct statement of what the mistakes are, just that “There were multiple errors … in the way [Aetna] annualized premiums and in the compounding of the rate increase,” according to California Insurance Department spokesman Darrel Ng.

Another article that same day on a Consumer Watchdog site, quoted Watchdog president Jamie Court as saying, “It’s amazing how insurers are making mathematical errors when they’re not used to regulators checking their math.”

Incidentally, a similar error was more recently discovered across the pond. According to citywire,

Yorkshire and Clydesdale Bank today said it is in the process of mailing around 18,000 variable rate mortgage customers to apologise for miscalculating their monthly repayments and to suggest ways customers can repay what they owe.

The bank said the calculating error, which was exacerbated by last year’s unprecedented falls in interest rates, led to the bank collecting less than the contractual minimum monthly payment required for customers to pay their mortgage within their agreed term.

Moral? Check your math.

Seriously, though this topic is serious enough, several of our math grads in recent years have gone into different aspects of insurance and finding errors can be a pretty important part of their jobs, whether it’s part of the official description or not.